Standard costs;

              Bulletin H A S K I N S & SELLS 31
Standard Costs
BY R. A. DALRYMPLE
THE subject of standard costs is worthy
of earnest consideration. A brief dis­cussion
may stimulate further study and
investigation in this subject which has
gained many adherents.
The basic principles briefly stated are
as follows:
(1) Standard costs are those costs which
competent engineers and operators can
establish prior to performance as normal
and proper, giving due consideration to
the nature and class of cost factors and
plant facilities available.
(2) Cost finding by the means of stand­ards
is an application of the standards
already established to the actual expendi­tures,
retaining an analysis of variations in
complete detail.
(3) Accounting reports based on stand­ard
costs make full detail comparisons of
the variations from actual and thus estab­lish
the trend of the industry.
In considering the application of prin­ciple
(1) we will divide costs into material,
labor, and overhead. A new manufac­turing
venture or a new sales year and pro­gram
must be predicated on an assumed
market basis for the necessary raw mate­rials.
If the market changes are unexpect­edly
violent, drastic changes in the program
or sales price of the product will be neces­sary.
By the application of principle (2) we
propose to continue in use throughout the
entire period for which the estimate was
made the same standard cost of material
per unit as that submitted at the time the
project or program was undertaken. Along
with this standard cost will be shown the
actual expenditures for material. The
variation from standard will be a com­posite
of several factors, and this variation
will be set up on the books divided into the
several amounts due to separate causes.
Thus, a variation in material cost may
properly reflect increase in market price of
raw material, decrease in transportation
costs, and increase in quantity consumed
due to greater percentage of waste than was
included in the standard cost. This varia­tion
will be further analyzed so that the
individual operator, the class of operations,
and the department producing this over-standard
waste will be shown.
Each one of these items is important in
itself and there is potential danger in
netting results that have such diverse
causes. Having arranged the records so
that there is available analyses of material
variation, the accountant now applies
principle (3) and shows the trend of all
the vital factors affecting the cost of raw
material.
When the new project or program is
undertaken, the second element of cost,
namely, labor must be considered and esti­mated.
In order to do this, each operation
necessary to convert the basic raw materials
into finished product must be separately
examined and the class of labor and type
of facilities available for said operation
must be also taken into account. A stand­ard
labor cost is established for each
operation which will be given in the follow­ing
terms:
(1) Standard number of units estimated
manufacturable from basic quantity of raw
material or previous process.